Fed report: Few saving for retirement

By Alicia H. Munnell

Bloomberg

Perhaps they’re concerned about how little we’re saving.

The Federal Reserve Board just released the results of a September 2013 survey, based on a nationally representative online panel, which was designed to monitor how well consumers have recovered from the financial crisis and to identify risks to their financial condition. While retirement was not the focus of the survey, it contained a number of questions that shed some light on how consumers think about supporting themselves in retirement and the steps they have taken to date.

Once again, the news is disquieting and flies in the face of the current campaign to show that everything is fine on the retirement front.

Just to be clear here: I would be delighted if everyone were going to be financially secure in retirement. That is not my assessment, but I would be happy to be wrong. If the arguments of the “all fine” campaigners were more persuasive, I would devote more time to becoming a life master in bridge! The problem is that the evidence for concern keeps piling up, and the recent Fed survey is just one more example.

Despite the shift from defined benefit plans to 401(k) plans, which shifts the responsibility for retirement planning to the individual, remarkably few respondents have given it much thought. Among those age 45-59 and 60+, about 40% said that they had thought “only a little” or “none at all” about financial planning for retirement.

Responses to questions about amounts saved reflect the lack of attention. Roughly 45% of those surveyed said that they had not saved any of their 2012 income. Since this figure includes all age groups, it exaggerates the lack of saving for those approaching retirement. But some other responses suggest that these older groups may be in trouble. A high percentage of those 45-59 (64%) and 60+ (42%) have not put aside an emergency fund to cover expenses for three months should they lose their job or suffer some other disruption. What is even more distressing is that only 48% of respondents said that they could fairly easily handle an emergency expense of $400.

In terms of retirement saving per se, 23% of those 45-59 and 15% of those 60+ responded that they had no retirement savings (savings, pension, or Social Security). The wording of the question may have led to understatement of eligibility for Social Security. When Social Security is excluded as a form of retirement “savings,” the share of respondents 60+ with no retirement savings rises to 31%.

So how do the people in the Fed survey think they will support themselves when they are in their sixties and seventies and thereafter? The short answer is: work. Of those who have given any thought to retirement, many either do not plan to retire, expect to keep working after they retire, or do not know how they will support themselves. I’m a great supporter of working longer. It’s a terrific lever for ensuring retirement security. Social Security benefits claimed at 70 are 76% higher than those for the same person claimed at 62, and assets in 401(k) plans have time to grow.

But the working-longer plan is a little more complicated. First, after some point, most people are no longer working; so people are going to need something more than Social Security. Second, for one reason or another people don’t end up staying in the labor force. Hopefully this picture will change over time. But in the Fed survey of those who identified themselves as retired, only 6% said that they had a job.

The overall picture from this most recent survey is that people are not prepared or preparing for retirement and their backstop is continued work. While working longer is a good idea, it should not be viewed as the only answer to the retirement-income challenge.

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About Encore

Encore looks at the changing nature of retirement, from new rules and guidelines for financial security to the shifting identities, needs and priorities of people saving for and living in retirement. Our lead blogger is editor Matthew Heimer, and frequent contributors include editor Amy Hoak, writer Catey Hill, and MarketWatch columnists Elizabeth O’Brien, Robert Powell and Andrea Coombes. Encore also features regular commentary from The Wall Street Journal retirement columnists Glenn Ruffenach and Anne Tergesen and the Director of the Center for Retirement Research at Boston College, Alicia H. Munnell.